Big Oil Clings to Tax Breaks While Hoarding Tens of Billions

On September 19 President Barack Obama announced his plan to reduce the deficit by $4 trillion over the next 12 years, including raising $1.5 trillion by closing special interest loopholes and other revenue raisers. This includes eliminating $41 billion in tax loopholes for the oil and gas industry (p. 63) over the next decade.

Big Oil is predictably opposed to losing its unnecessary tax breaks. The American Petroleum Institute, or API, the oil industry’s lobbying muscle, quickly claimed that “the Administration plan would hurt jobs and investment.”

But this claim ignores the fact that the big five oil companies—BP, Chevron, ConocoPhilips, ExxonMobil, and Shell—have ample financial resources that dwarf the value of these tax breaks. These companies enjoy billions in cash reserves, made nearly $1 trillion in profits over the past decade, and at least one company (ExxonMobil) pays a lower effective tax rate than the average American family.

In other words, Big Oil can readily afford to contribute its “fair share” to reduce America’s debt.

A Federal Reserve report released this month documented the massive cash reserves held by American corporations. The Wall Street Journal reported:

Corporations have a higher share of cash on their balance sheets than at any time in nearly half a century, as businesses build up buffers rather than invest in new plants or hiring.

Nonfinancial companies held more than $2 trillion in cash and other liquid assets at the end of June, the Federal Reserve reported Friday, up more than $88 billion from the end of March. Cash accounted for 7.1% of all company assets, everything from buildings to bonds, the highest level since 1963.

The big five oil companies are among those corporations that amassed huge cash reserves. In fact, a CAP analysis of company Security and Exchange Commission filings determined that the three largest American oil companies—Chevron, ConocoPhillips, and ExxonMobil—had $27 billion in cash or equivalent assets as of midyear 2011.

BP and Shell, the two largest foreign oil companies that operate in the United States, had combined cash reserves of nearly $32 billion at the end of last year (the latest data available). Added together, these five companies are sitting on cash resources of $59 billion, which is 30 times more than the estimated $2 billion in annual tax breaks that these companies receive.

The past decade was very prosperous for the big five oil companies due in part to high oil prices, including the record of $147 per barrel in July 2008. A CAP assessment determined that these companies made more than $900 billion in profit from 2001 to 2010. High oil prices this year earned them a whopping $67 billion in six months. These funds come from the pockets of American drivers forced to pay up to $4 per gallon for gasoline.

On September 19 President Obama implored wealthy individuals and corporations to help reduce the deficit, too:

Those who have done well, including me, should pay our fair share in taxes to contribute to the nation that made our success possible. We shouldn’t get a better deal than ordinary families get.

Yet at least one oil company, ExxonMobil, has a much better deal than ordinary families. It made $310 billion in profits over the past decade and another $21 billion in the first six months of 2011 alone. A Washington Post expose based on a CAP analysis, however, found that ExxonMobil had a lower effective tax rate than the typical middle-class family. ExxonMobil’s effective tax rate was 18 percent while average households pay 21 percent—15 percent more than Exxon’s tax rate.

The Post determined that these tax loopholes “have helped make the oil industry one of the most profitable, when measured by cash flow and return on investment.”

API claims that Big Oil needs the tax loopholes to create jobs and make investments. But are the big five oil companies investing these funds in job creation or clean energy? The evidence says no.

Despite generating $546 billion in profits between 2005 and 2010, ExxonMobil, Chevron, Shell, and BP combined to reduce their U.S. workforce by 11,200 employees over that time.

Just in 2010 alone, the big 5 oil companies reduced their global workforce by a combined 4,400 employees, while making a combined $73 billion in profits.

So if the big five companies aren’t hiring additional workers, are they investing in research and development? The Congressional Research Service found that the companies invested relatively little in overall research and development: “Total R&D expenditure of the five [largest oil] firms in 2010 was $3.6 billion.” This was just 4.7 percent of their $76 billion in profits.

The CRS noted that “it is difficult to determine how much of the R&D spending … was spent on green R&D projects from data published by the oil majors themselves.” These investments would provide financial and energy security for Americans in the grip of the volatile global petroleum market and help mitigate the climate change driven by fossil fuel consumption. But it did compile the information on alternative fuels and clean-tech investments provided by the big five companies to the Senate Finance Committee for a May hearing on Oil and Gas Tax Incentives and Rising Energy Prices. It appears that these companies spent a miserly 1.2 percent on alternative fuels and clean-tech research in 2010. (see table below)

This finding confirms a 2009 CAP analysis that determined these companies devoted a mere 4 percent of their collective 2008 earnings to clean-tech research and development. That year was their second-highest profit level.

Clearly the big five oil companies are not investing their huge profits in hiring workers or conducting alternative fuels research and development. Instead, many of these companies use their profits to buy back their own stock, an action that enriches their board of directors, senior executives, and shareholders.

These companies spent slightly more than one quarter of their profits on stock buybacks in the first half of 2011. This dwarfs the previous year’s investment in research and development. (see attached Excel spreadsheet) Yet the big five oil companies still claw to keep $20 billion worth of tax breaks.

President Obama has posed stark choices to reduce the federal budget deficit:

Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both.

Either we gut education and medical research, or we’ve got to reform the tax code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both.

He proposed that the big five oil companies contribute $20 billion over a decade since these extraordinarily rich companies hold billions of dollars in cash reserves, made nearly $1 trillion in profits, and the biggest of them pays a lower effective federal tax rate than the average American family.

It’s up to Congress to support seniors, students, workers, and middle-class families instead of genuflecting to Big Oil companies and their lobbyists once again.

Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy and Valeri Vasquez is a Special Assistant for Energy at American Progress.You can find the original article on the Center for American Progress website.

In Texas a proposed series of oil industry tax credits, part of the “business friendly” policies championed by Governor and now presidential candidate Rick Perry, threatens to further starve the state’s educational system. The credits are worth $150 million to oil refinery operators and would be taken directly from the state’s public education funding. Even worse, the state is asking certain school districts to give back money they’ve already received in order to fund the oil company give-backs.

From the San Antonio Express-News:
The Texas school budget has been stripped of $4 billion this year. That’s the backdrop against which the Texas Commission on Environmental Quality will be considering the oil company requests for tax credits to recoup for the cost of refinery equipment installed to lower harmful emissions. The AP reports the credits in question go back to payments made five years ago and, if awarded, are sure to draw out similar requests from additional oil company refineries operating in the state.

I like to think that NPR will present factual information on important issues
rather than extreme exaggeration but your segment on U.S. oil production and
resources (Sept. 24, 2011) falls into the realm of extreme exaggeration.

Your segment highlighted the Bakken Shale, which is mostly in North Dakota. I
believe you stated that the Bakken Shale has ~11 billion barrels of oil, if not
more, that is extractable.

An April 2008 USGS report estimated the amount of technically recoverable oil
using technology readily available at the end of 2007 within the Bakken
Formation at 3.0 to 4.3 billion barrels (680,000,000 m3), with a mean of 3.65
billion. The state of North Dakota also released a report that month which
estimated that there are 2.1 billion barrels (330,000,000 m3) of technically
recoverable oil in the Bakken. Based upon historical estimates from the USGS,
technically recoverable oil is an inflated estimate of how much oil that will
ultimately be extracted from a region. I expect the 2.1 billion barrels to be
too high. To place the figure in perspective, the U.S. consumes approximately 7 billion barrels of liquid hydrocarbons per year.

Although one of your experts gave the impression that the technology is
improving daily, fracking technology is quite mature at this point in time.

Through the first 4 months of this year (most recent US DOE/EIA data), North
Dakota’s oil production had dropped 0.79% relative to the last quarter of 2010.
That’s after increasing over 30%/year the last 2 years. It will be interesting
to see if that trend continues.

There seems to be considerable misunderstanding concerning the Bakken Shale and what is termed “oil shale”, the shale in places like Colorado. In the Bakken
Shale, there is actually oil impregnated into the shale. That is not the case
for most shale in the U.S. When you give a figure of 2 trillion barrels of
presumably recoverable oil for the U.S., most of that estimate is based upon oil
shale which has a solid organic material called kerogen in it. No amount of
fracking will remove the kerogen from the shale. It appears unlikely that the
“oil” in oil shale will ever be produced on a large scale. It is not at all
like the Bakken Shale.

You stated that U.S. oil production is increasing very rapidly. Based upon data
from the US DOE/EIA, U.S. crude oil + condensate production, what I consider as
oil, increased 2.66% through the first 6 months of 2011 relative to the first 6
months of 2010. I expect the second half increase for 2011 to be less than the
first half. The decline in U.S. liquid hydrocarbon imports has been influenced
substantially by an approximate 2 million barrel/day decline in liquid
hydrocarbon demand in recent years.

One of your experts in the segment was Amy Jaffe. She may be a good cheerleader
for U.S. oil production, but her forecasting record for oil has much to be
desired. Here is the summary of an article she wrote in 2000:

Summary:
As oil flirts with prices that call to mind the shocks of the 1970s, the usual
Cassandras have been warning of dwindling oil supplies and sky-high prices. But
the danger is precisely the opposite. The next two decades will witness a
prolonged surplus of oil, which will tamp prices down. This world of cheap oil
will have serious political reverberations. Without rising oil revenues, such
key states as Saudi Arabia, Russia, Mexico, and Colombia will face worsening
crises at home. The same is true in spades for Central Asia, where Washington’s
current wrongheaded policies could drag it into crises that make the Balkans
look like a pregame warm-up. The world should worry less about a scarcity of oil
than about a glut.

At the time, oil was $25-30/barrel and as I remember it, she was talking about
~$10/barrel for the next few decades. We’ve been a bit higher than $10 or even
$20/barrel for a long time. Is that really your oil expert?

You claim that soon, the U.S. will be producing more oil than Saudi Arabia and
Russia. I view that as extremely unlikely. Realize that oil production in
major producing areas such as the Gulf of Mexico (GOM) and Alaska are declining.
Through the first 4 months of 2011, GOM oil production was off ~163,000 b/d
relative to the first 4 months of 2010 while that of Alaska was off ~40,000 b/d
for the first 6 months of 2011 relative to the first 6 months of 2010. I
personally expect that in 5 years, U.S. oil production will be less than in
2011. I think my record at predictions for future oil production rates are
pretty good as this linked commentary shows:

Bottom Line on Climate Changehttp://www.theepochtimes.com
If climate change solutions are going to cross boardroom tables and pass through government chambers, the environmental issue must be translated into dollars and cents.
Like · · Share · about a minute ago
Climate Portals Hansen railed against what he says is the artificially low cost of fossil fuels in the United States.

“In some cases they’re [fossil fuel companies] even subsidized, and indirect subsidies are enormous!” declared Hansen. He listed some of the “indirect subsidies” as military costs to protect supply lines and health care costs for the millions who get sick and die of pollution related to fossil fuels every year.